Question

An 8% semiannual coupon bond matures in 6 years. The bond has a face value of $1,000 and a current yield of 8.4681%. What is the bond's price? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the bond's YTM? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) Do not round intermediate calculations. Round your answers to two decimal places.

Answer 1

Current yield = Coupon amount / CUrrent price

8.4681% = $ 1000 * 8% / Current Price

Current Price = $ 80 / 8.4681%

= $ 944.72

YTM = The rate at which PV of Cash inflows are equal to Price of the bind

YTM = Rate at which least +ve NPV + [ NPV at that rate / Change in NPV due to 0.5% in rate ] * 0.5%

= 4.5% + [ 9.69 / 43.04 ] 8 0.5%

= 4.5% + 0.11%

= 4.61% per six months

YTM per anum = 4.61% * 12/6

= 9.22% per anum.